The insurance sector was no exception to the past several years of overwhelming digital transformation that pushed so many industries quickly forward. However, with consolidation happening in our industry, many are wondering about the future of insurance technology. How can companies continue their growth trajectory and remain profitable?

From my perspective as president of one of the fastest-growing companies in insurtech, here are three things insurtech leaders should focus on in the next year to keep profitability consistent:

Put technology on the front lines

Our industry has fully begun to accept and integrate new technology that can bring more data and greater awareness to loss events. Insurance leaders can’t be afraid of harnessing this technology. AI tools specifically developed for front-line awareness are one way technology can effectively reduce loss events.

For example, in commercial trucking insurance, technology can monitor drivers’ safe-driving habits and overall performance. Data from in-vehicle sensors can identify which drivers are performing well and which need additional coaching, to determine more accurate risk pricing.

AI will never replace the role of human decision-making in the insurance field; it enhances our capabilities to create better outcomes.

Focus on prevention first

So much of the insurance industry is focused on indemnification, but the future of the industry will be in looking beyond the claims. Future leaders will master the skill of harnessing data-driven insights to focus on prevention first, instead of indemnification.

Imagine how much money and time could be redirected if insurance companies helped their clients think ahead and head off negative outcomes. In my practice in the trucking sector, we know that our drivers are coachable and that loss events decrease over time. The AI tools we use recognize drive patterns, identifying frequencies in potential risks like speeding, hard braking and hard turning. With drivers’ safety as a core part of our mission and offerings, we can direct coaching sessions on modifying these behaviors, thus preventing accidents.

There will always be surprises and unpredictable events; accidents happen that even advanced technology can’t foresee or prevent. But in the cases where we can intervene – on the roads, in homes and offices and on job sites – companies should bring fresh attention to preventing those loss events from happening.

See also: What Big Tech Can Do for Insurance

Remember people are at the heart of insurance

Even with new technology, in this industry teamwork is one of the most powerful tools of all. As has been proven time and time again, teams that can collaborate and communicate effectively will remain profitable. Especially now, as more teams reenter the field or traditionally in-office roles become partially or fully remote, elevating team culture should be a key mission for leaders.

Ensure diversity of talent remains a consistent goal for your organization – a range of perspectives and backgrounds will help your team take a well-rounded approach to meeting business objectives and problem-solving around potential blocks.

Remember that leadership is not a closed loop – feedback is important to keeping teams, especially in insurance and insurtech, nimble and engaged. Stay honest, communicate with candor and act with integrity. You’ll find that decision-making will happen more effectively and that pivots can happen quicker when the need arises.

It’s unclear whether continued industry consolidation or another spike of growth will lead the market over the next few years. Whatever happens, insurance companies at any stage should not be afraid to maintain people-focused leadership, embrace technology and unite these capabilities to account and solve for risk – a very human problem. Ultimately for us, it’s about safer roads, safer people and being a good partner to those who need our expertise.

While the insurance industry has years of experience providing quality customer service with tested methods, companies must leverage new technologies to eliminate manual processes, automate claims, optimize workflow and improve overall customer service, and they are having a hard time keeping pace.

AI can help insurance providers automate job scheduling and keep numerous requests organized so that downtime and unnecessary travel are eliminated. Completely customizable schedule optimization software can help organizations map to their personal key performance indicators (KPIs) and account for factors such as geography, workloads and skillsets – enabling quick determination of which adjuster is most appropriate for the job.

Furthermore, insurers can democratize scheduling and increase adjuster productivity and efficiency by empowering adjusters to leverage domain knowledge that improves job prioritization. Schedule optimization technology allows providers to create job dependencies that streamline a succession of work orders based on priority and order functionality. Therefore, companies can reduce cycle times from first notice of loss (FNOL) to investigation and increase adjuster utilization, helping their bottom line.

Optimize claims processing

Historically inefficient tasks that plague the insurance industry are the dated forms of claims processing. Field service solutions tailored to insurers can define the intelligence for automating the closed-loop claims process to create an end-to-end claims management solution. Companies can improve operational efficiency by automating claims adjudication, validation and auditing with configurable logic, enabling workers to focus on exceptions rather than contractor payments. Additionally, insurers can optimize reserves and reduce claims costs with automated solutions by leveraging warranty management adjudication logic to validate service rates, job information and manufacturing, parts and contract information to ensure only valid claims are eligible for payment.

Likewise, real-time claims validation reduces the time contractors spend waiting on claims status and payment, while simultaneously identifying fraudulent activity by checking claims against personalized business rules and flagging ineligible claims before payment. A fully integrated, configurable claim management system can be used to protect the integrity of claims processing. Those who incorporate a unified, end-to-end field service management (FSM) platform are better-equipped to combat fraud, reduce claims process friction, optimize costs and improve customer satisfaction.

See also: Good, Bad and Ugly of Going Digital

Digitize customer interactions

Due to the pandemic, 90% of insurance claims are now processed virtually. According to a J.D. Power Satisfaction Study, the way an insurer handles FNOL makes up 25% of an insurance customer’s satisfaction level. Insurtech software provides helpful tools to simplify the claims process, allowing customers to connect to company-specific consumer portals to access details regarding their claims. Portals allow clients to upload relevant information and photos of their claim and provide adjudicators with augmented reality (AR) and virtual reality (VR) tools to corroborate claims and increase accuracy and efficiency when analyzing damage off-site.

Agent-guided service and self-service customer portals allow a modern, user-friendly claims process without common complexities. Through customer portals, policyholders have the autonomy to self-select appointment times and access real-time status updates from FNOL, resulting in a 27% improvement in net promoter scores and a 30% improvement in customer satisfaction ratings. When outlining customer service protocol in insurance, companies must keep in mind that clients have likely experienced a recent loss or damage to property, and a superb, responsive and navigable customer journey should be a top priority to maintain retention and build client loyalty.

Move to modernize

Although an established industry that has reigned supreme in business for centuries, the insurance space is changing. There are an estimated 1,500 insurtech startups around the world – startups that will transform the industry by leveraging digital, AI and advanced analytic technologies to improve efficiencies and drastically cut costs, while increasing the ability to implement innovative solutions faster as market forces evolve. Today’s consumers have more choices, lower prices and greater control than ever. To meet evolving customer expectations and revive adjudication and claims processing standards, insurance companies must take advantage of field service and insurtech tools to remain competitive and profitable.

We love shortcuts. Time is valuable. Gas is expensive. I can avoid four stoplights and a school crossing if I take a left instead of a right turn at the place other people turn right. They don’t know what they are missing. I am “in the know.” I’ve timed the shortcut, and it works.

In a way, this is the secret sauce of the new insurance marketing tactics. People love shortcuts. They need them desperately in their busy lives. Insurers that understand the various needs of different market segments and affinity groups can create new avenues for business.

To do so, insurers must think three-dimensionally. With many insurers using traditional roads, innovative insurers are looking at the map and thinking, “We can get people from point A to point B faster, with less traffic, if we give them new routes,” and maybe even find other ways to simplify their lives along the way.

These are some of the issues Majesco and PIMA considered as they researched and developed their joint report, Expanding Channels for Insurance: A Spectrum From Traditional to Affinity and Embedded. The report surveyed PIMA members on their views regarding current products and channels and on their future plans. The data exposed some areas where there is a real opportunity for channel growth and product improvement across the channel spectrum. The channel spectrum is wide, but understanding it and how it affects the market and customer behavior is the key to unlocking shortcuts for the customer and large opportunities for insurer growth. (See Figure 1.) Some of the greatest opportunities for insurers lie in the embedded space — providing ancillary offerings that ride along with other products and services.

Figure 1: Distribution Channel Spectrum

We’ve already discussed improving placement for P&C products and L&AH product placement. Today, we’re uncovering the other products and services that might be bundled along the way and discussing the multi-channel approach — the shortcuts that customers are wanting today.

The Case for Value-Added Services

Other Products & Services represents one of the best opportunities for growth. Value-added products are underused by insurers and yet still wanted by customers, both individuals and businesses. Other Products & Services were offered by the fewest number of surveyed. (See Figure 2.) Some of these are striking and suggest opportunities for growth as well as meeting rising customer expectations.

Majesco’s consumer and SMB research has consistently found these value-added items have high interest. We have stated that the definition of a product has shifted beyond just the risk product to include value-added services and customer experience, which extend and enhance the customer relationship to drive more loyalty and potential revenue growth.

As an example, financial planning is an increasingly important service as “financial well-being” expectations and needs continue to grow. In particular, it is likely underused by the Gen Z/Millennial generation, providing an opportunity to establish a long-term relationship. This is a formula that Sofi is using to capture customers in the GenZ/Millennial space.

Likewise, caregiving is increasingly important and part of the “financial well-being” concept as people age, and the sandwich generation gets caught between planning for their retirement and caring for their parents. Caregiving is a vastly untouched opportunity for insurers to extend customer value, loyalty, trust and revenue. Time-pressured pre-retirees find it difficult to manage everything from doctors' appointments to prescription schedules. How can insurers step into the gap between home-based care and full-time care to ease these burdens? Where is the shortcut that gives back time and improves care?

See also; Modernizing Insurance for the Digital Era

The opportunity goes beyond shortcuts, however, because new insurance marketing philosophies are beginning to form around the idea of better meeting group needs with group packages of insurance and services. Affinity groups, which many times offer niche/community-oriented solutions, should be the first to pick up on the idea of whole-experience packaging for products and services. How can partnerships be applied to create platform or ecosystem-supplied marketing and distribution channels?

Figure 2: Other Products & Services offered by PIMA members surveyed

The Need for New Channel Growth

Consistent with the other two product groups (P&C and L&AH), the most-used channels for value-added services are Affinity Relationships (61%), Agents & Brokers (55%) and Digital (42%). Despite this similarity, the actual levels of use vary as compared with L&AH and P&C. Overall, as shown in Figure 3, Other Products & Services are 17% to 30% lower than in L&AH and compared with P&C, 17% lower for Digital and 11% lower for Affinity Relationships.

Other similar patterns in channel usage continue with the Other Products & Services group, including varying levels of channel variety for specific products. In general, simpler products are offered through more channels while more complex ones are offered through a smaller number of channels. As an example, one of the least-offered products, Caregiving (just 6% offer this product), has the highest channel variety. In comparison, three of the most-offered products (Discount Programs, Roadside Assistance and Legal Services) have lower channel variety, limiting reach.

Because Other Products & Services are not a risk product, they lend themselves to alternative channels, particularly Digital, Affinity Relationships and Embedded options. As companies seek to expand these offerings, they should consider aligning them with a broader array of channels as well as aligning them to be purchased with risk products through the channels where they are sold, increasing reach and driving growth.

Figure 3: Channels used to distribute Other Products & Services

Like the P&C products, very few of the Other Products & Services are offered through embedded options. However, Other Products & Services are using embedded options more than P&C products, with five of the six using all three options (Soft, Hard, Invisible – Figure 4) compared with only two of the 14 P&C products. Interestingly, Other Products & Services had the highest net usage, of 26%, for Invisible Embedded as compared with 20% for L&AH and 12% for P&C. Once again, this indicates an untapped product and channel market to drive customer engagement, loyalty, value and revenue.

Figure 4: Embedded options used with Other Products & Services

Analyzing the Market Opportunities for Other Products & Services

We used three dimensions to help identify market opportunities for Other Products & Services: product offering popularity (the size of each circle), channel variety (the vertical axis) and use of embedded options (the horizontal axis) as shown in Figure 5. We uncovered three potential growth options.

1. Move off Zero

Once again, four products and services have no embedded options and have lower channel variety: Risk Management, Home Healthcare, Risk Monitoring, and Money Management. Absence Management could also be considered with its low embedded use and channel variety. Even though most of these are relatively small to moderately sized in the number of companies offering them, leveraging more of the channel spectrum, especially embedded options, could lead to growth opportunities. It also opens up opportunities for those who do not provide these products and services to expand reach, value and revenue.

2. Reach New Markets With Popular Products by Leveraging the Channel Spectrum

Compared with the other products and services, Financial Planning/Wellness, Discount Programs and Legal Services are offered by a larger number of companies, yet they have lower embedded use and have not leveraged the breadth of channel variety. Growth opportunities with these popular products can be accelerated by expanding to new channels, particularly embedded options.

3. Two Ways to Grow

Not surprisingly, Roadside Assistance has a high offering rate, high channel variety and Table Stakes embedded use, given its value and inclusion for many auto products. While this could suggest a crowded market with limited growth, surprisingly only 23% of companies offer it. In Majesco’s consumer and SMB research, this offering was considered to be of great interest and value, suggesting it is an unmet market need offering a growth opportunity.

In addition, even fewer companies are offering Caregiving (only 6%). Those that do are using high channel variety and embedded options. As a point of reference on market opportunity, the American Association of Retired Persons estimates that about half of all people over 65 will need some kind of long-term care, such as in-home care, an assisted living facility, or a nursing home. Given the potential growing interest with the aging of Boomers and Gen X, future growth opens market opportunities to capitalize on.  

Figure 5: Market opportunities for Other Products & Services based on product popularity, channel variety and embedded usage

A Multi-Line Channel View

Looking at the three products separately provided a view of market opportunities within those segments. However, many companies are multi-line or have partnerships with others to offer products they do not create. More importantly, looking at a multi-line view provides a customer lens given they likely buy a range of products within those three segments. 

We combined the three product groups in Figure 6 to provide a multi-line view. Some interesting macro insights emerge:

• L&AH commands a compelling lead over P&C both in terms of most offered products, channel variety and embedded options used. 
• Other Product & Services falls behind L&AH but has some products that are ahead of or even with P&C. The one exception is Roadside Assistance, which outpaces all products in all segments.
• L&AH’s dominance in multi-channels and Affinity Relationships has provided a strong foundation to experiment and embrace embedded channels, putting them at an advantage overall. Building and retaining that advantage through other partnerships, including insurers, to provide a wider array of products, could create a business model for growth that can capture a large portion of the anticipated embedded insurance market.
• This view highlights the potential of new offerings that combine different products to create customer experiences that drive growth. For example, the combination of home, caregiving, disability insurance or long-term care insurance could provide an elderly homeowner with IoT-based home devices the ability to not only get a discount for homeowners but also the ability to provide alerts to take meds, monitor falls, provide reminders for doctor appointments and more – combining products to meet a broader need and providing value.
• In general, there is a wide-open opportunity to expand into more channels for all product segments given the mid-to-low channel variety. At the same time, some of those channels can be leveraged to accelerate embedded options. Together, this would expand the market reach for products that offer customers more options to buy when, where and how they want to buy.  
• Majesco’s consumer research highlighted strong interest in bundled products that offer a broad, holistic solution to customers’ health/wealth/wellbeing, and many combinations could be created among the three product segments. Likewise, Majesco’s SMB research found the same demand for a holistic, broad combination of products that meet new expectations.

Figure 6: Multi-line market opportunities based on product popularity, channel variety and embedded usage

With customer expectations changing rapidly, companies need to create distribution advantages that give them a unique and competitive advantage to acquire and retain customers. This advantage is rooted in leveraging a broader array of the channel spectrum, including embedded insurance that is built into the customer experience and leverages the trust of other brands.

What actions should insurers consider?

1. Establish new partnerships and channels encompassing the emerging start-up-fueled distribution, embedded and partner services landscape to extend reach before the opportunities are tied up.
2. Stake out your position by either commanding more of the total value proposition or becoming a specialist in someone else’s ecosystem.
3. Refocus to a “buying” over “selling” approach – through a multi-channel strategy that meets customers where and when they want to buy.
4. Use a blended focus on product and business needs, value-added services and channel preferences. It is crucial to consider all of them to innovate and meet different generational needs and expectations to drive growth and engagement.
5. Invest in next-gen platforms and capabilities that embrace openness by investing in talent and technology and adopting an open, API-centric, cloud, AI/ML, microservices platform.

See also: Distribution Management: A Path to Maturity

Insurance’s New Multipliers

For insurance organizations to grow, expanding market reach with broader channels and products is a necessity. The success that is found in individual products is greatly multiplied when opportunities are built around customer lives and business operations. In nearly every case, insurers need to prepare themselves and their technologies to bundle, expand, embed, partner, customize and flex to meet future market demands.

The attraction of the broader array of channel options, and in particular embedded options, is aligned to what customers want and expect. They want to buy insurance when, where and how they want --- with convenience and speed. The question is…can you meet these new expectations? Do you offer your products through multiple channels? Do you have a distribution strategy that broadens your market reach? Multi-channel, multi-line, multi-service — these are the business multipliers that will take insurers from good to great.

As you and your teams brainstorm about channel and product growth opportunities, you may wish to use findings from Expanding Channels for Insurance: A Spectrum from Traditional to Affinity and Embedded as a springboard for conversations and planning. For additional perspectives, you may wish to view our recent webinar, Finding White Spaces in the Product/Distribution Channel Landscape.

The industry is leaning into climate change much more than in the past. That's partly because events such as Hurricane Ian dramatize the risks but also because insurers are seeing ways to help clients and, more broadly, society, while also seeing business opportunities. In this month's interview, Alex Wittenberg, a partner with Oliver Wyman with over 20 years of cross-industry experience, said: "I think there's going to be an opportunity for some new products, especially around things like voluntary carbon markets, which are entirely new and will require a new suite of products. If I buy $100 of carbon credits that are going to materialize in 10 years, they need to materialize in 10 years. There's a lot that can happen between then and now, so you have to think through, well, is there a guarantee or an insurance product that someone can offer?" Making progress is especially important in the insurance world, so much so that our focus this month is resilience and sustainability. It is an ever evolving topic, but we face the challenge of keeping up in order to help society and serve our customers.

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ITL:

I’m mostly struck by the overwhelming complexity of how insurers have to sort through issues related to resilience and complexity. How would you frame the issue?

Alex Wittenberg:

There's a lot of opportunity in the energy transition, but insurers don't want to become the R&D department of the insureds by paying losses on technology that only works under certain conditions or that doesn't scale. 
It's becoming increasingly difficult even to insure what are considered successful technologies as the size and complexity of the projects increase. Even things like offshore wind and large-scale battery storage are experiencing significant losses. The transition from carbon-intensive to green may look logical on paper, but not if you're an insurer experiencing the loss ratio. 

ESG [environmental, social and governance issues] can also present some complex issues when there is overlap between the S and E. For example, the essential energy project that is carbon-intensive and faces an issue with an indigenous population, or a carbon-intensive project that also provides electricity to an underdeveloped community. Insurers need to weigh actual technical and societal merits of the project against the reputational issues and the optics, which is very difficult to do.

ITL:

How do you then go about advising clients on how to think about underwriting first a specific risk and then assembling a portfolio of risks?

Wittenberg:

I don't think it helps anybody for insurers to simply exclude entire swaths of the energy industry, because, frankly, it’s going to be with us for a long time. Even the IEA [International Energy Agency] scenarios show gas usage growing through 2050 and oil consumption staying relatively flat [under the state policies scenario]. As demand for all forms of energy grows, someone is going to need to provide it.

Other parts of the portfolio will expand more rapidly, but carriers need to have a better understanding of the individual assets they are insuring and be able to tell the story about which subsectors will actually be growing. The energy companies can tell you how much of their current and future capital expenditures will go to renewables or alternative fuels or carbon capture, and insurers need to be able to tell a similar story about their current portfolios and the future trajectory.

ITL:

And everything has to happen while we accommodate huge increases in demand for energy and still keep everyone's lights on.

Wittenberg:

Energy security is interesting because it shines light on both sides of the equation. We need to keep our baseload power going, but green projects need to be accelerated, as well. A lot of things have to come into alignment, including technologies that aren't deployed at scale, keeping in mind that not all new technologies will work as anticipated.

There's a lot of new technology that carriers are going to be expected to underwrite. I talked to some of our banking colleagues at Oliver Wyman, who are rightly debating how these projects will be financed. I said, I think you need to figure out who's going to insure it, because the finance folks are unlikely to show up if it's uninsured.

A good example is ScotWind. Based on the blocks that have been auctioned off in Scotland, you're talking about at least $100 billion of construction of offshore wind capacity, and it could all come online in a fairly confined period. The insurance industry isn't necessarily set up to absorb $100 billion of offshore construction all at once. There's probably going to have to be some thinking around new ways to do it.

ITL:

And some of these issues get complicated by public perceptions. I mean, my dad was the chief spokesman for Westinghouse in the 1970s, so I grew up hearing about his struggles selling the idea of nuclear power.

Wittenberg:

Public reaction doesn't always necessarily lead to the best long-term response.

The other thing I would highlight from an insurance standpoint, something that Hurricane Ian highlighted, is that there will be tightening of availability of catastrophe [cat] insurance capacity in the marketplace over the next few years. It's already a challenge to get carriers to participate in the Florida insurance industry, and Ian was a significant loss, on a historical scale. Now layer in these newer projects, like a wind farm in the Atlantic or the Taiwanese Strait, that are susceptible to various cat perils and that require limits of a billion or a billion and a half dollars. You're talking about a significant cat limit, especially during construction, and in an operational setting that is not as well understood as, say, Gulf of Mexico offshore platforms.

ITL:

How quickly do you think insurers will adjust to the complexities of resilience and climate change?

Wittenberg:

There isn't much agreement on timeframe. There are carriers that believe they have until 2050. Other carriers believe they have to get this figured out in the next two to three years. So, the issue creates a lot of dislocation in insurance markets and a lot of choppiness, which in turn creates a lot of uncertainty for the insureds.

ITL:

Any final points you’d like to make?

Wittenberg:

I think there are some good things…

ITL:

I was hoping you’d say that.

Wittenberg:

I honestly believe that some of these complexities will normalize, but it's going to take time.

I think there's also going to be an opportunity for some new products, especially around things like voluntary carbon markets, which are entirely new and will require a new suite of products. If a company buys $100 of carbon credits, it is essential that they are real and that they are not reversed in the future. There's a lot that can happen between then and now, so you have to consider if there is a guarantee or an insurance product that can be created. Many of these new market mechanisms will require products that go beyond what is currently available in the insurance marketplace today.

There will also be modifications to encourage people to build back green after a catastrophe like Ian. Carriers are already making some accommodations in property policies, so an individual or firm that suffers a loss doesn’t have to rebuild with the same materials of the same quality but instead has the flexibility to make the property more resilient.

ITL:

I'll be watching closely to see how Florida rebuilds after Ian. I hope you're right that they can prepare better for the next storm, which is surely coming.

Thanks for the time and the insights.

FROM THE EDITOR  As I talked with speakers following the recent Global Insurance Forum about resilience and sustainability, I got the sense that the industry is leaning into climate change much more than in the past. That's partly because events such as Hurricane Ian dramatize the risks but also because insurers are seeing ways to help clients and, more broadly, society, while also seeing business opportunities. For instance, as you'll see in this month's interview, Alex Wittenberg, a partner with Oliver Wyman, said that forward-thinking insurers will offer modifications to policies "to encourage people to build back green after a catastrophe like Ian. Companies are already making some accommodations in property policies, so someone who suffers a loss doesn’t have to rebuild to the original conditions with the same materials of the same quality but has the flexibility to make the property more resilient." Others have talked about how the industry can use its sophisticated models to send signals that go further into the future than happens now. At the moment, insurers basically send a one-year signal about risk, through the pricing of a policy renewed annually. Those signals are certainly useful -- and huge increases in some premiums are shaping decisions now about whether and how to rebuild in Florida following the devastation from Ian -- but whatever is built now needs to have the next 20, 30 or 50 years in mind.   Ken Mungan, chairman of Milliman, had what I think is a very clever idea for how insurers (and pension funds) can use their investment portfolios to help finance climate initiatives, as I described in a recent column.  We obviously have a long way to go on resilience and sustainability, and I don't think we're moving fast enough, but we do seem to be making some progress, both in helping society, writ large, and in finding new ways to serve customers. That'll have to do for now.  Cheers, Paul The industry is leaning into climate change much more than in the past. That's partly because events such as Hurricane Ian dramatize the risks but also because insurers are seeing ways to help clients and, more broadly, society, while also seeing business opportunities. In this month's interview, Alex Wittenberg, a partner with Oliver Wyman with over 20 years of cross-industry experience, said: "I think there's going to be an opportunity for some new products, especially around things like voluntary carbon markets, which are entirely new and will require a new suite of products. If I buy $100 of carbon credits that are going to materialize in 10 years, they need to materialize in 10 years. There's a lot that can happen between then and now, so you have to think through, well, is there a guarantee or an insurance product that someone can offer?" Making progress is especially important in the insurance world, so much so that our focus this month is resilience and sustainability. It is an ever evolving topic, but we face the challenge of keeping up in order to help society and serve our customers. Read the Full Interview "...to encourage people to build back green after a catastrophe like Ian. Companies are already making some accommodations in property policies, so someone who suffers a loss doesn’t have to rebuild to the original conditions with the same materials of the same quality but has the flexibility to make the property more resilient"  —Alex Wittenberg Read the Full Interview READ MORE Running Toward Climate Risk The industry in aggregate is retreating from climate risk, at a time when society needs it to run toward the most severe risks that threaten us. It's time for the industry to step up.   Read More How to Prepare for Catastrophe Claims By improving weather modeling and assessing past catastrophes, insurers can use predictive analytics to provide better support to customers during difficult times. Read More How Open Source Can Combat Climate Change More open sources of data and common standards for models will enhance our understanding of the potential implications of climate transition decisions.   Read More Property Underwriting for Extreme Weather Insurers have massive databases from simulation models and satellites when it comes to weather and climate. The problem is figuring out how to use them to their full potential. Read More Parametric Solution for Wildfire Risk Parametric insurance products could provide immediate relief through automatic payouts to vulnerable people in affected areas. Read More Climate Change and Product Liability Climate change risk is emerging within the product liability discipline in a pattern seen previously with mass tort litigation.   Read More FEATURED THOUGHT LEADERS Charlie Sidoti Jeff Saye Matt Foote Upendra Belhe Dheeraj Pandey Pushkar Bhattacharya Peter Whalen Nigel Brook Christopher McKeon   This Month Sponsored by: Oliver Wyman Oliver Wyman is a global leader in management consulting. With offices in more than 70 cities across 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 5,700 professionals around the world who work with clients to optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a business of Marsh McLennan [NYSE: MMC].   For more information, visit www.oliverwyman.com. Follow Oliver Wyman on LinkedIn and Twitter @OliverWyman.

When I remodeled a house years ago, I decided that the most expensive words known to man were, "While we're at it...." Then a co-author and I spent two years having a team of researchers look at 2,500 corporate disasters and realized the most expensive words are actually, "We have to do something...." 

Those words spring to mind because several columnists in recent days have opined that, sure, Mark Zuckerberg is overspending by billions of dollars a year on a misguided vision of the metaverse, contributing to the expected layoffs of thousands of employees this week, but HE HAS TO DO SOMETHING to revive growth--and right now. Or, look at Elon Musk, who HAS TO DO SOMETHING about Twitter so quickly that he is doing and undoing initiatives almost as fast as he can tweet and is driving away users and advertisers in the process.  

Actually, rather than lunging toward the metaverse before he has it figured out, Zuckerberg could return the billions to shareholders and let them find other innovations to invest in, or he could simply keep his powder dry until he understands more about what more prudent investors, such as venture capital firm Andreessen Horowitz, are calling Web 3.0. Musk, after taking his initial, likely needed, cut at costs could put together an actual plan and stress test it rather than just announcing and quickly amending plans online.

The rest of us don't HAVE TO DO SOMETHING, either, even though inflation, geopolitical turmoil and a bunch of other forces are creating extreme stresses that may tempt us to do something rash with our businesses.

Instead, we should be even more careful in tough times. In addition to following our normal methods for making strategic decisions, we should add a "devil's advocate" process to make sure we understand all the ways a strategy can go wrong. A strategic bet can't just be the best available from a set of bad choices but must actually make sense analytically. 

I'll explain. 

Zuckerberg's and Musk's desperate logic is clearly tempting. These are very smart guys. But Chunka Mui and I learned the dangers when we researched 2,500 corporate disasters for our 2008 book, "Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Corporate Failures of the Last 25 Years." We learned that management teams can talk themselves into all sorts of corporate strategies even when it should be obvious that the idea is a nonstarter -- we decided that 47% of the failed strategies could easily have been identified as losers ahead of time. For instance, one of the world's biggest cement companies decided that, because its cement was used in so many homes, it was really in the home products business and should start selling lawn mowers. It didn't take a genius to see that the home products strategy was a huge reach, but the company went ahead and, sure enough, filed for bankruptcy soon enough. 

The propensity for major error increases when companies are under pressure--as so many feel they are these days or expect to be in coming quarters. Management teams feel the need for quick, dramatic action and are more likely to rush to judgment. That's especially true when the CEO lines up behind an idea early, as Zuckerberg has at Meta and as Musk is doing (much more chaotically) at Twitter. The dynamic shifts from testing an idea to trying to make the CEO's idea work, no matter how improbable.

Chunka and I also learned, though, through consulting work based on the book that a management team almost always sees all the flaws in a strategy. The key is to give those people a chance to point out the flaws before the company commits to a bad idea. 

The process we recommend is to use a devil's advocate. We mostly modeled our approach on what President Kennedy did so successfully during the Cuban Missile Crisis. JFK, having bungled the Bay of Pigs because he too readily accepted his advisers' assurances, appointed his brother Bobby to challenge all the claims and advice offered by political and military leaders. So, when Gen. Curtis Lemay told JFK that he could bomb Cuba without fear of prompting an attack by the Soviets, RFK spoke up, eventually got Lemay to admit that he had no evidence for his claim and maybe saved the world from nuclear holocaust. 

In a corporate environment, a CEO can anoint someone as the devil's advocate--perhaps a senior executive, perhaps a board member, perhaps an outsider, depending on the internal dynamics. That person would then be given license to identify all the potential problems, mostly through interviews with the senior team, and would present the case against a strategy. The negatives could then be weighed against the positives and a decision made, free of the pressure to do SOMETHING even if all the alternatives are bad.

Some version of Zuckerberg's metaverse may well play out. Virtual reality keeps improving, and we're clearly still in the early days of realizing the potential of digital forms of communication. Andreessen Horowitz, one of the smartest VC firms around, obviously has investment theses for each of its Web 3.0 companies that go well beyond any hype. (I'm less optimistic that Musk can figure out a magic solution at Twitter.)

But Zuckerberg, Musk and others are nonetheless adding to the very long list of corporate errors that the rest of us can learn from. 

Cheers,

Paul  

 

The insurance industry has a full plate these days – dealing with everything from economic and political instability, climate change, a hardening market and increased claims expenses, to finding skilled workers and operating in a fiercely competitive environment where digital transformation is a must. However, according to a recent survey we conducted with global IT decision-makers, C-suite executives across the industry think cybersecurity is the largest challenge of all. 65% of insurance technologists cited cyber-attacks/threats as a greater concern than inflation (45%) and retaining and hiring talent (40%), and cloud evolution/migration is a big part of the story.

The consequences of cyberattacks can be devastating to insurers that are unprepared. 63% cited operational downtime as a leading concern, while 51% percent reported concerns over intellectual property loft and theft, and smaller percentages say they are concerned about damage to brand reputation (47%) or revenue loss (33%).

See also: Cyber Trends That Will Change 2023

Good News 

There is some good news in the survey. Insurers have increased their investment in cybersecurity, and that shows no sign of changing. Despite the economic challenges brought about by the pandemic, 81% of insurers report that their cybersecurity budgets have increased over the past three years. Respondents also note that the issue receives an increasing share of board visibility. They also cite increased collaboration between the security team and the C-suite to address cyber risks. More than ever, security teams, boards and C-suite executives at insurance companies are working together to ensure risks are appropriately controlled:

• 72% note an increase in board visibility for cybersecurity over the past five years 
• 73% cite increased investment in cybersecurity due to better collaboration between the security team and members of the C-suite.

…and Some Bad News 

At the same time, carriers are moving their infrastructure away from proprietary data centers through multi-year cloud transformation initiatives. Maintaining a security posture that meets compliance challenges and addresses top risks while these structural IT changes are taking place is emerging as a challenge. With IT infrastructure spread across public and private clouds, and a significant installed base of legacy IT infrastructure still not on the cloud, holistically managing cybersecurity becomes more challenging, especially in a world where IT talent and cyber talent are at a premium.

It is not surprising that the leading targets for new cybersecurity investment among insurers are cloud native security (69%), data security (51%), consultative security services (51%) and application security (42%). According to the survey, cloud native security is the area where organizations are most likely to rely on an outside partner for expertise. 

These investments align with the top areas insurers perceive as their greatest concentration risk, led by network security (55%), closely followed by web application attacks (54%) and cloud architecture attacks (64%).

The consequence of these converging dynamics is that fewer than half (42%) of insurance IT professionals said they are “fully prepared” to respond to cybersecurity attacks and threats. In addition, a majority report being either “unprepared” or only “somewhat prepared” to respond to major threats like identifying and mitigating threats and areas of concern (50%), recovering from cyberattacks (53%) or preventing lapses and breaches (66%). 

For all the industry’s efforts to put cybersecurity at the top of the agenda and the increased spending on new technologies, there are still too few insurers adding cloud-native security functionality or third-party SaaS security tools that are built specifically for cloud-based workloads. As threat actors continue to target cloud workloads and access points, and as IT architectures grow in complexity, there will clearly be a need for carriers to use outside security assistance to identify and mitigate their threats. 

With massive shifts in the workforce, economic uncertainty and the majority of employees routinely feeling disengaged from their work, the need for strong leadership today is dire.

A lot has been said about leadership and change. Some people believe that leaders are born, not made. Others believe anyone can become a leader with the proper training and experience.

But what does it take to be a successful leader?

How can you lead change effectively in your organization?

Here are 10 tips that can help you lead change in the insurance industry.

1. Be visionary

“Chase the vision, not the money.” Tony Hsieh

Leaders need to have a clear vision for the future and be able to articulate it in a way that inspires others. For a leader to be visionary, they must be clear about the impact they want their organization to make in their community or industry. Without a vision, it’s difficult to set goals and create a roadmap for change.

77% of employees who feel they are aligned with the company’s purpose or vision are engaged, compared with only 20% of employees who are not aligned with the vision.

2. Be decisive

“The way to develop decisiveness is to start right where you are, with the very next question you face.” Napoleon Hill

Leaders need to be able to make tough decisions, even when there is no clear right or wrong answer. They also need to be able to make decisions quickly and efficiently, without dragging their feet.

Indecisive leadership can cost your organization as revenue opportunities can vanish if you don’t act quickly. Effective leaders can overcome emotional impulses and take a step back, assess a situation and decide the course of action. Conversely, leaders who can’t control their emotions often make rash decisions that can lead to catastrophic consequences.

Making the wrong decision is inevitable; it happens to everyone. The key is to trust yourself, focus on how your decision affects your company’s vision and be ready to adjust if things do not go as planned.

3. Be communicative

“The most important thing in communication is hearing what isn’t said.” Peter Drucker

Communication is critical for any leader. You need to be able to share your vision and goals with others and rally people to your cause. According to Vimeo, one out of eight business professionals say their companies never communicate strategy updates.

To do this, you must communicate confidently and frequently with your employees, sharing good and, if necessary, bad news. This will inspire trust. Use these opportunities to take ownership and share your insights with the team.

Leaders also need to be able to listen to feedback and take it on board. Try practicing active listening on all levels of the company. Give employees a space to share their ideas, perspectives and opinions on company matters.

See also: The Evolution of Leadership Intelligence

4. Be motivating

Leaders must create a positive and inspiring work environment to motivate others to achieve collective goals.

Granting autonomy to skilled employees helps motivate them to bring their best effort each day. When employees feel valued and cherished for their skills, perspectives and personalities, they’re more likely to find fulfillment in their work.

In addition, it’s imperative to provide recognition and rewards for people who excel within the organization. Rules and punishments don’t inspire.

5. Be adaptable

Leaders must be able to adjust tactics and strategies to the ever-changing landscape. Leaders also need to be able to embrace change themselves and be role models for others.

Having a diverse workforce and culture is a great place to start. Diverse workforces have many different ways of thinking, allowing leaders and organizations to stay open to different perspectives and change.

In addition, get in the habit of seeking out opportunities and trends. For example, look at how different industries are experimenting with new technology and listen to podcasts on topics you’re unfamiliar with. Continuously learning new trends and global perspectives can build an adaptable mindset and help you become more open to change.

6. Be authentic

People need to trust their leaders, and one of the best ways to build trust is by being authentic. Leaders must be true to themselves and display the same values through their actions and words that they expect from the rest of their team.

Authentic leaders must also be comfortable in their skin, have strong self-awareness and understand their weaknesses, strengths and values. By displaying your strengths and weaknesses to your team, you can show that you have nothing to hide. This way, you build trust among your team, and when an employee makes a mistake, they’ll feel more comfortable sharing their errors with you.

7. Be passionate

Passion is contagious, and leaders must be passionate about their vision for the future. This passion will inspire others and help them stay motivated through tough times.

Give your team some praise and congratulations to reignite their passion, and yours. Try taking your team out for lunch or organize a fun team activity like ziplining. When you celebrate achievements, you show that you’re getting closer to your vision.

8. Be coachable

No leader is perfect, and the best leaders are always learning and growing. They are open to feedback and willing to learn from their mistakes.

To be a coachable leader, you must be curious about your strengths and weaknesses, be hungry for feedback and have an open mind. You can’t focus on being right all the time, but rather focus on learning new things and listening to different perspectives.

Moreover, listen to the advice of your support group and advisers and apply that advice to your business just like an athlete would use it in their game. In business, just like sports, coaching and advising are meant to take you out of your comfort zone and push you toward greater success.

Leaders should also be willing to invest consistently in their own development and that of their team members. Whether this takes the form of courses and programs or a difficult conversation to encourage professional development, you must prioritize learning and growth for yourself and your team.

See also: 7 Things Sailing Taught Me on Leadership

9. Be collaborative

Leadership is not a one-person show. The best leaders know how to build and work with teams. They can delegate tasks and give others the credit they deserve. Leaders should also create an environment where different ideas can be shared and debated openly.

You must also give credit where it’s due and recognize the contributions of employees and teams. According to HubSpot, 69% of employees say they’d work harder if they were better appreciated. For example, if an employee comes up with an idea that brings in revenue opportunities, openly share credit with them.

10. Be humble

The best leaders do not have big egos. They know they cannot do everything independently and are not afraid to ask for help. They are humble and always looking to improve.

To be a humble leader, you must respect your employees’ time, ideas and feedback and treat your team how you want to be treated. Try to respond quickly to your team’s questions and requests, ask questions, show up on time for meetings and listen to their opinions. In addition, be accessible to your team and don’t let someone’s rank or pay grade affect how you act around them.

Leadership is not easy, but it is essential for anyone looking to effect change in their organization. By following these tips, you can develop the skills you need to be a successful leader.

Ransomware remains a top cyber risk for organizations globally while business email compromise incidents are on the rise and will increase further in the "deep fake" era. At the same time, the war in Ukraine and wider geopolitical tensions are a major concern as hostilities could spill over into cyber space and cause targeted attacks against companies, infrastructure or supply chains, according to a new report from Allianz Global Corporate & Specialty (AGCS). 

The cyber risk landscape doesn’t allow for any resting on laurels. Ransomware and phishing scams are as active as ever, and on top of that there is the prospect of a hybrid cyber war. Most companies will not be able to evade a cyber threat. However, organizations with good cyber maturity are better equipped to deal with incidents. Even when they are attacked, losses are typically less severe due to established identification and response mechanisms. 

Although we see good progress, our experience also shows that many companies still need to strengthen their cyber controls, particularly around IT security trainings, better network segmentation for critical environments and cyber incident response plans and security governance. As a cyber insurer, we are willing to go beyond pure risk transfer, helping clients to adapt to a changing risk landscape and raising their protection levels.

Around the world, the frequency of ransomware attacks remains high, as do related claims costs. There were a record 623 million attacks in 2021, double that of 2020.  Although frequency reduced by 23% globally during the first half of 2022, the year-to-date total still exceeds that of the full years of 2017, 2018 and 2019, and Europe saw attacks surge in the first half. Ransomware is forecast to cause $30 billion in damages to organizations globally by 2023. From an AGCS perspective, the value of ransomware claims the company was involved in, together with other insurers, accounted for well over 50% of all cyber claims costs during 2020 and 2021.

See also: Cyber Risk and Insurance in 2022

Double and triple extortion now the norm 

The cost of ransomware attacks has increased as criminals have targeted larger companies, critical infrastructure and supply chains. Criminals have honed their tactics to extort more money. Double and triple extortion attacks are now the norm – besides the encryption of systems, sensitive data is increasingly stolen and used as a leverage for extortion demands to business partners, suppliers or customers. Ransomware severity is likely to remain a key threat for businesses, fueled by the growing sophistication of gangs and rising inflation, which is reflected in the increased cost of IT and cyber security specialists.

Increasingly, smaller and mid-sized companies, which often lack controls and resources to invest in cyber security, are being targeted by gangs as larger businesses invest more heavily in security. Gangs are also using a wide range of harassment techniques, are tailoring their ransom demands to specific companies and are using expert negotiators to maximize returns.

Sophisticated scams

Business email compromise (BEC) attacks continue to rise, facilitated by growing digitalization and availability of data, the shift to remote working and, increasingly, "deep fake" technology and virtual conferencing. BEC scams totaled $43 billion globally from 2016 to 2021 according to the FBI, with a 65% surge in scams between July 2019 and December 2021 alone. Attacks are becoming more sophisticated and targeted, with criminals now using virtual meeting platforms to trick employees to transfer funds or share sensitive information. Increasingly, these attacks are enabled by artificial intelligence enabling "deep fake" audio or videos that mimic senior executives. Last year, a bank employee from the United Arab Emirates made a $35 million transfer after being misled by the cloned voice of a company director.

The threat of cyber war 

The war in Ukraine and wider geopolitical tensions are a major factor reshaping the cyber threat landscape as they increase the risk of espionage, sabotage and destructive cyber attacks against companies with ties to Russia and Ukraine, as well as allies and those in neighboring countries. State-sponsored cyber acts could target critical infrastructure, supply chains or corporations.

As yet the war between Russia and Ukraine has not led to a notable uptick in cyber insurance claims, but it does point to a potentially increased risk from nation-states. Although acts of war are typically excluded from traditional insurance products, the risk of a hybrid cyber war has accelerated efforts in the insurance market to address the issue of war and state-sponsored cyber attacks in wordings and provide clarity of cover for customers.

See also: 6 Cybersecurity Threats for Insurers

Improving Risk Controls

In response to a more complex risk environment and increasing cyber claims activity, the insurance industry is more diligently assessing companies’ cyber risk profiles in a bid to encourage companies to improve their security and risk management controls. 

The good news is that we are now seeing a very different conversation on the quality of cyber risk than a few years ago. We are gaining much better insights and appreciate clients going the extra mile to provide comprehensive data to us. This also helps us to provide more value and offer useful information and advice to customers, such as which controls are most effective or where to further improve risk management and response approaches.

The net result should be fewer – or less significant – cyber events for our customers and fewer claims for us. Such collaboration will also help in creating a long-term sustainable cyber insurance market that not only relies on traditional coverages but, increasingly, on integrating cyber risks into captive programs and other alternative risk transfer concepts.

Floridians whose properties were destroyed or damaged by Hurricane Ian are expected to file between $53 billion and $74 billion in insurance claims. The federal government will disburse billions more in disaster assistance through tax relief, subsidies and direct grants. While the vast majority of the claims are legitimate and will be settled, criminals always see opportunities in the misfortunes of others. 

According to the FBI, insurance fraud may have accounted for as much as $6 billion in losses to insurance companies and government agencies after Hurricane Katrina in 2005. Fraud now accounts for about $40 billion in losses per year to U.S. insurance companies, costing the average family $400 to $700 per year in increased premiums. 

But losses to fraudulent claims can be minimized by insurance companies. Identify verification (IDV) solutions have come a long way since Hurricane Katrina. Today’s most robust solutions use artificial intelligence and machine learning technology to verify identities anywhere in the world in a few seconds. 

Fraud flows through false information and identities

After a disaster, the most common frauds include false or exaggerated claims by policyholders, as well as bid-rigging by contractors who inflate the cost of repairs, and charity fraud scams designed to misappropriate disaster relief funds.

Money earned through an insurance fraud scheme rarely flows directly to the perpetrators. Instead, fraudsters tend to move the money through online accounts using individuals who have a legitimate U.S. bank account. This not only allows scammers to conceal their identities but also makes it difficult for regulatory authorities to detect fraud and recoup the funds. 

Additionally, digital wallets, mobile banking and other money transfer apps have opened the gateway to new avenues for moving illegal funds around. These channels allow users to access accounts without appearing in person. As a result, the scammers avoid cameras at ATMs, bypass manual security checks and conceal their true identities

To file for false unemployment insurance claims, criminals usually take over existing identities or fabricate identities using stolen details or forgeries. Identity theft is just the beginning. Once fraudsters have successfully created an account using the stolen personal information, other forms of fraud quickly follow. 

See also: How to Prepare for Catastrophe Claims

Mitigating insurance fraud with state-of-the-art IDV solutions 

Digital payment options make it easier for scammers to commit identity fraud - but government agencies and insurance companies can easily detect fraudulent players and suspicious identity details with the right technology. Using robust identity-proofing mechanisms during onboarding can prevent fraud.

Digital identity verification leverages state-of-the-art technology and artificial intelligence models to carry out multiple identity checks. Integrating identity-verification software can spot thieves - along with false insurance claims. 

Here’s how it works: The claimants provide personally identifiable information for identity verification. They are then asked to present themselves online to provide proof of identity, using valid ID documents. The AI-powered identity verification software verifies the documents and checks for any signs of tampering or forgery. The image on the ID document is also matched against the face of the claimant to ensure they are who they claim to be. If the verification process is successful, the insurers can proceed to process the claims within seconds.

During the initial identity verification process, the claimant is verified by authenticating not just official identity documents but also by collecting biometric data. Because biometric data is virtually impossible to replicate, it serves as a better defense mechanism. This way, even if a fraudster is filing for a fraudulent claim through an online channel, their identity can still be identified and reported to authorities.

The bottom line: Today’s most robust IDV solutions can authenticate claimants during the application stage, filter out fraudsters and minimize the threat of fraud. It’s a win-win for both the insurers and the policyholders who desperately need to file claims after a disaster.